Cartels 2023

Cartels 2023 – An Overview

A prefatory note

In past editions of this guide, the overview has referenced the potential breadth of the term “cartel” and the notion that competition regulation is a “living tree”, continually subject to pruning and shaping while maintaining its essential structure. At the same time, enforcement agencies have expanded their activity to include activities in sectors of economic activity that often escaped scrutiny.

Today, the “living tree” metaphor is inexact, failing to capture the changes reflected in analysis of competition questions and the expectations of political leaders for more aggressive actions from regulatory agencies. Whether described as reliance on “post-Chicago” economics, or abandonment of “long-term consumer welfare” as a governing standard, or simply as enhanced pressure for enforcement initiatives, changes have moved beyond “pruning and shaping” and often reflect an overriding analytical shift:  “anti-competitive” is no longer the final conclusion reached following analysis; it is applied at the start to perceived results or potential effects seen as arguably undesirable, warranting investigation and/or prosecution in the hope that a newly developed theory of economic harm will provide relief or new hi-tech investigative tools will make defendants recognise that litigation risks have increased and foster resolution by consent. There is also pressure in more countries to use competition regulation to achieve or accelerate social change and increase scrutiny of behaviour that is seen as problematic.

Single-firm behaviour, such as abuse of dominance or use of “conscious parallelism” without multi-party agreement, is most directly affected by this evolving trend. However, its possible effect on cartel enforcement should not be ignored. Inter-company communications, informal comments and shared information can become the foundation for re-characterising single-firm behaviour as an agreement meeting a broad definition of “cartel”. The definition announced some years ago by the Australian Competition and Consumer Commission is direct and simple (if somewhat overstated): “A cartel exists when businesses agree to act together instead of competing with each other.‟

This is no time for complacency. Many matters can easily evolve into illegal cartel behaviour. They must be monitored carefully. (As they will also be monitored by regulatory agencies!) All of this, in turn, impacts leniency programmes, which have seen a decline in applications in some countries, leading some regulators to consider broader incentives for being the first to report and discontinue cartel participation, while other regulators consider more explicit requirements for firms seeking leniency. In addition, private rights of action to recover damages, including class actions or equivalent procedures, continue to play an important role in many countries worldwide and must be considered alongside government regulatory activity.

At the minimum, no one subject to competition law should assume that the level of enforcement activity experienced in the past years will define the future.

Definitions

The basic principles have not changed. What has changed is the number of regulatory agencies increasing their involvement in enforcement activity and the number of businesses and individuals who erroneously believe that these principles do not apply to them or that they can avoid problems by just “staying around the edges”. Despite ongoing compliance training efforts, many still believe that the term “cartel‟ is limited to secret meetings in which sizeable companies with global footprints fix the prices for the products they sell, leading to government action and, in some jurisdictions, multimillion-dollar private class actions or actions for collective redress – and little beyond that.

These are, of course, classic examples of cartel behaviour. And they can lead many companies to say, “Not an issue for us; we are too small.” The reaction is understandable but absolutely wrong. A more durable definition is one that encompasses a wide variety of arrangements between actual or potential competitors involving agreements that may set or affect price (or price factors), output (including volume and geography), product (including features, characteristics and other classifications), practices (such as operating rules, restrictions on innovation and the like) and often inputs (such as raw materials used, sources, employment practices and restrictions, and related costs). A memorable, if not also useful, acronym for these factors is POPPI. Some argue that “costs” deserves its own initial, particularly because of the current focus on agreements and practices that restrict employee movement (aka “no-poaching” agreements), so they prefer “POPPCI”!

Tracking cartel activity

The common method used by regulatory agencies around the world to track cartel activity is to count the number of cases and total the monetary value of sanctions imposed. Those numbers go up and down from year to year; for example, in 2020, some metrics went down because of the COVID-19 pandemic’s effects on personnel, while at the same time, the number of jurisdictions reporting new cases and higher-than-ever fines went up. Statistical measurements in 2021 reflected even more significant increases in fines. Data for 2022 is mixed, but in a number of jurisdictions reports of higher numbers of pending cases, plans for increased enforcement and higher penalties suggest that enforcement will be robust. While cases are interesting points of reference, they can be misleading. Many competition cases have long gestation periods so that one year’s metrics do not reflect current levels of activity. Given the length of time needed to conclude investigations and prosecutions, annual data may simply reflect stages of case development. Changes from year to year rarely, if ever, reflect a continuing trend, and emphasis on significant fines or actions against leading firms does not provide instructive guidance to the full business community.

Also, metrics fail to capture information regarding significant procedural changes, such as rulings that extend liability to the parent or controlling corporations and even corporate directors (including an obstruction charge for individuals involved in shredding documents pertinent to a price-fixing investigation), dawn raids, revisions in programmes involving rewards for whistle-blowers and leniency regimes, or initiatives in regulatory agencies addressing specific problematic areas, including new inquiries into digital marketing. The role that the use of algorithms plays in competitive behaviour and enhanced recognition that business activity among entities not viewed as direct competitors in their principal businesses may nonetheless include involvement in restraints that affect market function in more limited sectors, such as employment and wages, also need to be considered.

The number and variety of proceedings involving cartel behaviour, applying sanctions to all manner of POPPCI agreements between competitors, is the meat on which regulatory authorities worldwide feed. And the impact on business entities and individuals caught in these proceedings – both criminal and civil – can be extraordinary. Over 150 countries, as well as the EU, have some form of competition laws, and co-operation between regulatory authorities is increasing each year. Over 40 countries have laws imposing criminal penalties on cartels and their participants. The jurisdictions in which anti-cartel activity is beginning to gain regular attention – consider, for example, Brazil, Chile, Egypt, India, Mexico, South Korea and Turkey – leave little doubt that concern for potential cartel issues everywhere is mandatory. Put simply, agreements that restrict the decisions of competitive market participants in any of the POPPCI categories, in any jurisdiction and among entities of any size, are likely to be problematic and should only be pursued after obtaining legal guidance from qualified and experienced counsel.

Targets and actions

The targets of competition agencies are varied. Small and medium-sized enterprises, and activities in economic sectors that might be thought of as less significant, do not escape scrutiny. Consider the activities in the past few years of the US Department of Justice Antitrust Division and the US Federal Trade Commission. They have ranged from opposition to a proposed regulation that would bar Kansas real estate brokers from offering gift cards to home-buyers, to action against companies using electronic media to set the prices of customised online promotional products, to distribution of used cars from Texas to Latin America, to foreign exchange manipulations, to restrictive agreements between hospitals in south-east Michigan limiting where they would market, to employers′ “no-poaching‟ and wage-fixing agreements with their horizontal competitors affecting workers (involving major multinationals, but also between local Texas therapist staffing companies), to inquiries into elements of vertical relationships often ignored, and classic alleged price fixing and/or market allocation schemes in international shipping, electrolytic capacitors and packaged seafood. In addition, cartels face the administrative authority of the Federal Trade Commission, which has been applied to a trade association code of conduct restricting competition among organists and chorus conductors, and fee-setting methods used by appraisal management companies. Both agencies predict an increase in their efforts in 2023‒24. And state attorneys general maintain a list of concerned antitrust enforcement teams under their state antitrust laws as well.

Competition authorities′ actions against cartels in major sectors of the economy – e-commerce platforms, energy, transport, banking and finance, public project bid rigging, etc – are well known. In many countries, e-commerce and government procurement (even for comparatively small tenders such as school meals or railway car fans, or concrete repair for projects in smaller local government units) have risen to the top of the list of concerns. Regulatory scrutiny has also extended to matters as diverse as musical instruments, rolled lead roofing products, cleaning services, laundry detergents, maintenance of gas furnaces, condominium refurbishment contracts, optical disk drives, pipework connectors, pharmaceutical ingredients, metal packaging manufacturers, spark plug manufacturers, online sellers of posters and frames, courier services, real estate commissions among agents in a local area, adult incontinence undergarments, baby diapers, in-home personal care services, Tasmanian growers of Atlantic salmon, warehouse surcharges, arrangements between competing manufacturers in emission control research and development slowing the rate of innovation, setting the recovery of the costs of emission compliance in product pricing, right down to arrangements among four publicists, two cardboard box companies (with one given immunity for co-operation), and even a truck/tractor mechanic who quoted a repair cost for a front-end loader and then sought cover from the only other mechanic in a remote region of Australia. The message is clear: no one can assume that an area of business activity is too small to be the object of attention.

Looking ahead

As noted above, developments are uneven. No one can assume that the rules, procedures and presumptions in one jurisdiction will be applied in another or that levels of enforcement activity will remain unchanged.  Staying abreast of cartel regulation is a jurisdiction-by-jurisdiction, practice-by-practice requirement.

Conclusion

Remember, this guide is intended as a broad, first-level survey of principles and practices in a substantial number of jurisdictions. It will, we hope, be useful in helping to identify issues and shape further enquiry. Its scope will also help to underscore the fact that effective competition law compliance programmes are an essential element of risk management and client education (as well as having potential salutary effects on the sanctions imposed when companies and individuals find themselves under scrutiny). But the guide is not a compendium of answers to actual problems that arise in the course of business activity. “Answers‟ require detailed review and evaluation. Competition laws are not only complex as written and interpreted; they most often call for fact-intensive enquiry and analysis by experienced counsel. Those caveats notwithstanding, this guide is a body of information of immense value to anyone concerned with the application of “cartel‟ (or “POPPCI‟) questions that arise on a regular basis.